Is Initial Coin Offering Illegal?

We will first delve into the regulatory framework governing ICOs in China, then explore the crime of illegal absorption of public deposits and its connection to ICOs and finally shed light on the elements required to establish fundraising fraud within the context of ICOs.

It is evident that ICOs have attracted considerable attention from regulators due to their potential risks and implications for investors. The Chinese government has adopted a cautious approach, prioritizing investor protection and risk prevention. As a result, ICOs are subject to rigorous scrutiny, and their legality is determined based on compliance with relevant laws and regulations. This regulatory environment aims to strike a balance between fostering innovation and safeguarding the interests of investors.

When an ICO initiator publicly promotes their offering, surpasses a certain investor threshold, and raises virtual currency beyond the statutory limit while promising returns, it may constitute the illegal absorption of public deposits. Recognizing the need for clarity and improved legal application, the Supreme People’s Court issued a decision modifying and refining the conviction and punishment standards for this crime. These revisions provide a robust legal framework for cracking down on illegal fundraising through ICOs, safeguarding the interests of the public and preserving financial stability.

To prove fundraising fraud, two key elements must be present. Firstly, ICO initiators must employ fraudulent methods, deceiving investors by providing false or misleading information. In the rapidly evolving world of blockchain and ICOs, information asymmetry often puts retail investors at a disadvantage, making them vulnerable to deception. Secondly, ICO initiators must possess the intent of illegal possession. This intent can be demonstrated through misappropriation of funds, a lack of intention to fulfill promises made to investors, or even a clear intention to defraud and abscond with the funds. These elements serve as a foundation for identifying and prosecuting fundraising fraud, ensuring accountability and deterring unscrupulous activities in the ICO space.

In conclusion, the legal landscape surrounding ICOs in China is multifaceted and constantly evolving. The Chinese government recognizes the potential of ICOs as a means of raising funds for innovative projects but remains committed to protecting investors and safeguarding financial stability. Regulations are in place to ensure compliance, and those who engage in illegal fundraising activities face severe consequences.